IMF Mission Concludes the 2013 Article IV Mission to Tajikistan

Press Release No. 13/110
April 9, 2013

An International Monetary Fund (IMF) team led by Mr. Jonathan Dunn visited Dushanbe March 28 – April 10 to conduct the 2013 Article IV consultation mission. The mission benefitted from open and constructive discussions with President Rahmon, senior government officials, development partners, and the private sector. At the conclusion of the mission, Mr. Dunn issued the following statement:

“Helped by strong growth in remittances, Tajikistan’s real GDP grew at 7.5 percent in 2012. Annual inflation kept pace with global food and fuel prices and remained in single digits. Growth is projected to ease below 7 percent in 2013 because of slower growth in Russia and weaker aluminum exports, while inflation pressures are expected to remain low. The fiscal accounts strengthened in 2012 on improved revenue collection and expenditure rationalization, with budgeted social spending fully implemented. External debt remains moderate at just above 30 percent of GDP.

“Tajikistan is highly vulnerable to shocks. International reserve and fiscal buffers are low, with reserve cover at around 1½ months of imports. The country relies heavily on remittances and commodity imports, and has a narrow export base. External debt service is rising and the fiscal position is periodically burdened by losses originating in banks and State Owned Enterprises (SOEs), such as through the cost of the government’s intervention in Agroinvestbank (AIB) in 2012. Risks are exacerbated by Tajikistan’s landlocked geographical location and challenging business climate, which serves to dampen investment and job creation.

“In view of the fragility of the global economy, fiscal and monetary policies should aim to keep inflation under control while supporting sustainable growth, and to build fiscal and external buffers. The government’s current fiscal and monetary policies are appropriately geared toward single-digit inflation, and if supported by increased exchange rate flexibility would help support international reserves. Reserve and fiscal buffers should be increased through the conversion of National Bank of Tajikistan (NBT) and Ministry of Finance (MOF) non-monetary gold into reserve assets, with 2½ to 3 months of import cover an appropriate medium-term reserve target. Over the medium term, gradual consolidation to small fiscal surpluses—while protecting social expenditure and priority public investment—will be needed to preserve fiscal and debt sustainability. The fiscal position can be bolstered through tax administration reforms to support the implementation of the new tax code; the introduction of a dividends policy for state-owned enterprises, including for Talco Management; and improved monitoring and reform of SOEs. Systematic implementation of structural reforms could help to offset any negative impact of fiscal consolidation by helping the economy earn more rapid growth dividends.

“The financial system should be strengthened so that it can attract and intermediate savings to support investment and job-creating growth. This requires the establishment of financial accountability, the improvement of governance at some banks, and the elimination of directed lending. In this regard, resolving AIB in line with good international practice is a high and urgent priority. To protect the value of AIB and the government’s investment in the bank, the mission recommends that the government hires, on a competitive basis, a reputable international management team to run the bank. The mission urges the NBT to refrain from regulatory forbearance on AIB's lending practices, and to prevent net new lending by AIB until such time as a new international management team is appointed. To help minimize the fiscal cost of its intervention in AIB, the government should consider re-privatizing AIB by hiring an investment bank to market the government’s share globally. The government should also enforce collections on the loans that it purchased from AIB.

“Additional financial sector priorities are to strengthen banking supervision and regulation; to enhance central bank independence; to coordinate better monetary and fiscal policies and regularize financial relations between the NBT and MOF; and to develop the government securities market. The latter will provide banks with alternative placement opportunities, broaden the range of domestic market-based financing options for the government, and create instruments through which to strengthen the monetary policy framework.

“The IMF looks forward to continued close collaboration with Tajikistan through policy discussions and technical assistance. Upon its return to headquarters, the mission will prepare a full report for discussion by the IMF’s Executive Board in early summer.”